Sirius Minerals plc (lon:sxx)
Sirius Minerals – Another Share Issue Instead Of Bonds?


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Title: Sirius Minerals – Another Share Issue Instead Of Bonds?
Company: SXX - Sirius Minerals plc
Share Price Then: 10.4p
Author: Ian Smith
Date: Wed 07 Aug 2019
Comments: Sirius announced a delay to the issue of $500 million worth of bonds apparently because of “market conditions”, which as far as I can tell means that the market wants 13.5% interest and Sirius wants to offer 10%-12%.

Although it was announced that the issue would be revisited when condition change, the general opinion seems to be that the current cash will run out in September and apparently the offer from JP Morgan of a RCF of $2.5 billion expires at the end of October.

So will Sirius accept the higher interest rate or go back to shareholders and issue more shares?

If they did a 1 for 1 new issue at 10.4p it would raise around £730 million, although it is not clear that this would be an acceptable substitute for the bond issue in terms of activating the JP Morgan RCF.

Certainly the plan was no more share issues, but with about $1.6 billion already spent would shareholders decide enough is enough or would they cough up once more?

Back in April when $400 million was raised in a share issue, the $400 million bond issue was announced and JP Morgan offered a $2.5 billion revolving credit facility we were told "Successfully securing the stage 2 financing is effectively key to unlocking Sirius's vast potential, and we expect should catalyse a major re-rating of the shares."

At that time most reports gave the impression that the bond issue was pretty much a done deal and it was just a matter of going through the formalities, this now appears not to be the case.

Certainly one more share issue seems possible as so many private investors have already put so much in and nothing has really changed. If you believed in the project yesterday then today it is still as good.

Equally new investors may see an opportunity as the risk decreases and the new post issue share price may start to look attractive.

So in a few months will we be seeing 7p as the new stable price?
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Previous Commentaries On Sirius Minerals plc
Date Share Price Author Commentary
Tue 23 Apr 201920pIan Smith

Sirius Minerals – Revisited As Stage 2 Funding Due Soon

I Looked at Sirius in Jun 2017 when the share price was 33p compared to today’s 20p and concluded that it was too long term and too risky for me.

Today it seems that Sirius are looking for $3.6 billion for Stage 2 funding rather than $3 billion an increase of $600 million or 20%, as far as big engineering projects go that’s pretty much so what, normal, if you care about that then you probably don’t understand large projects.

The big but is that at today’s price of 20p the market capitalisation of Sirius is only £1 billion, suddenly an extra $600 million starts to look worrying.

The plan was that stage 2 financing would not include a new share issue, it was only a plan and a new share issue looks to be possible, $600 million once fees are added could easily by 60% of the UK pound valuation of the company.

If the company gets to production and can sell its only product, Poly4 a polyhalite fertilizer, and can sell the volumes it is predicting at the publicly discussed price then it is still a winner.

The latest presentation states that there are already 8.2 million tonnes pa on take-or-pay supply agreements in place, the numbers in the presentation make this $610-$820 million in EBITDA based on a $70-$100 per tonne mark-up.

It is not clear though what the pay price is, is it near the sell price or a notional price only?

The downside is that these large sounding EBIDTAs need to service about $4.2 billion in debt and the terms for much of this haven’t yet been agreed.

Or course the quantity and sales price predictions could be wrong, currently the world-wide demand for this type of fertilizer appear to have been only 1.7million tonnes is 2017 about one fifth of Sirius’s target of 10mtpa

Even so if you are the person putting up the $3bn then things are probably quite rosey, you are likely to get your money and the interest owed.

With full production not scheduled until 2023 and nothing before 2021 it is a long time for a private investor to understand the business based on results not predictions and during this period the loans could be costing something like $200 - $250 million in interest pa, so by the time production is at 10mtpa the company may have added another $1billion to its debt.

If you are a shareholder the future seem much less certain, delays in production or lower than expected prices or demand could easily see all the healthy profit on sales go to operating costs and debt repayment

So buying in today seems to put you are risk of suffering from a major share issue, either soon for the extra $600million or possibly later on if costs rise or funds are needed to make interest payments.

As a share issue is only a theoretical issue I did a quick look at the shorts list and about 7.2% of Sirius’s shares are being shorted, that puts in in the top 15 companies.

Despite the level of retail enthusiasm but because of all of the above and I am still staying away. No matter what the future holds from my perspective investing in Sirius risks tying up money for no return for the next 5 years, that is a lot of lost opportunities, dividends and capital growth in other companies.

I wouldn’t be surprised that if in 10 years time the company is a great success then it will quoted on various forums as proving the benefits of long term holdings, if it fails it will simply be forgotten.
Wed 28 Jun 201733.16pIan Smith

Is Sirius Minerals plc Too Long Term For Private Investors?

Sirius Minerals are an early stage mining company looking to mine Polyhalite (fertilizer) in the North Yorkshire Moors.

The current schedule has the first production occuring at the end of 2021 and full production starting mid 2024. There may be uncertainity that this schedule will be met as much of the construction work will be debt funded rather then be new share issues.

Inevitably there are those who think that it is a great opportunity and others who think that it will never be completed and even if it is there is no demand for the product.

As the company is currently a FTSE 250 company there is some price stabilty, but for a private investor there is no great reason to believe in a share price increase (currently it has reached 48p) before production starts and plenty of reason to believe that it may drop.

If you are quite young you may be able to wait this long, assuming that the company actually gets to the expected production level, but if you need to sell over the next 3-4 years you could be taking a very large loss. In other words it could be seen as a pseudo "value trap".

Even if the project becomes a success you still need to compare it the growth available from investing your funds elsewhere during those years.